Magazine

Fannie Is Watching Its Back

January 11, 2004

In the endless pursuit of victory in Washington, yesterday's enemy is often today's fellow warrior. But no bedfellows are stranger than the ones pushing a bill to give the Food & Drug Administration the authority to regulate tobacco. The once-implausible proposal now has the backing of ardent smoking foes, tobacco farmers, and the U.S.'s largest cigarette company, Altria Group (MO) (formerly known as Philip Morris). "The stars are about as aligned as they can be," says Matthew Myers, president of the Campaign for Tobacco-Free Kids.

Why is yesterday's long shot today's odds-on favorite? In this marriage of convenience, smoking foes would get what they've long sought: FDA oversight of tobacco products and advertising. For Altria, regulation would bring more protection against lawsuits and counterfeit products, which hurt its Marlboro more than other brands. What's more, new restrictions on advertising might make it harder for competitors to cut into the market share of Marlboro, America's dominant brand. And Altria is expected to come out with a "safer" cigarette that, under such a bill, could be advertised as having the FDA stamp of approval. Indeed, other tobacco execs deride the legislation as the Marlboro Monopoly Act.

Versions of a bill granting the FDA power to oversee tobacco advertising -- and even the contents of cigarettes -- have been around for more than two years. Last October, a deal being brokered by Senator Judd Gregg (R-N.H.) fell apart because of such sticking points as how far the FDA could go in ordering changes to make cigarettes less harmful. Altria originally agreed that the agency could require changes, but only if they passed a test of consumer acceptance. Public-health groups argued that such a test could be used to block any real changes, defanging the FDA.

Since October, Senator Mike DeWine (R-Ohio) has been quietly negotiating with antismoking groups and Altria on issues that torpedoed the Gregg bill. Now, each side says acceptable compromises have been reached, though they are mum on the details. "There are no impediments to a bill that all parties agree to," says Mark Berlind, vice-president and associate general counsel at Altria.

Farm Aid

The bill gained momentum when Senators Mitch McConnell (R-Ky.) and Elizabeth Dole (R-N.C.) failed to slip a stand-alone tobacco farmer bailout package into Congress' catch-all 2004 spending bill. "The [farmers] can only get their buyout with us," says one of the tobacco bill negotiators. Combining FDA regulation with relief for farmers will win 80 votes in the Senate, proponents predict.

Big hurdles still remain. GOP House leaders have not yet signed on. Some unenthusiastic antismoking groups fear that any bill that makes it through the process will be chock-full of loopholes. And the proposal faces strong opposition from Altria competitors, such as R.J. Reynolds Tobacco (RJR) and Lorillard Tobacco.

In the past, the Republican House and Senate leadership, as well as President George W. Bush, "have proven time and time again they would rather protect the tobacco industry than public health," complains William T. Godshall, director of SmokeFree Pennsylvania. But with powerful interests now aligned, the old verities may not hold in 2004. Despite a $1.1 billion accounting scandal and lingering questions about Fannie Mae's (FNM) investment strategies, Congress has little appetite for saddling it with new regs. But the financial giant is taking no chances. On Dec. 12, Fannie launched a political action committee to bundle campaign donations from its 4,000-plus employees. It hasn't had a PAC since 1993, when it raised only $63,738, with $42,800 going to Democrats. Instead it has relied on large, unregulated donations to the parties, giving more than $1.8 million in the 2002 election cycle. With such gifts now outlawed, Fannie -- like others -- is turning to the PAC to maintain its presence, Senior Vice-President Chuck Greener says. The potential is enormous: In the 2002 election cycle, more than 1,000 Fannie employees gave almost $1 million, says Kent Cooper of the nonpartisan PoliticalMoneyLine, which monitors campaign cash. Fannie employees already have donated $216,000 this election cycle. Among the givers: Fannie lobbyist Duane S. Duncan, a regular contributor to Republicans. If the rest of the Democratic Presidential field is going to stop front-runner Howard Dean, they'll have to beat him in the cluster of seven contests on Feb. 3, a week after the New Hamp-shire primary. But new American Research Group polls show the former Vermont governor ahead in South Carolina, Oklahoma, and Arizona, known as the centrists' last stand. Retired General Wesley Clark is the only other candidate with significant support in all of those states.